The move ends a brief coaching search that only began nine days ago when Jim Caldwell was fired following the Colts disappointing 2-14 season.
The Colts have been extremely active so far this offseason, cleaning house in an effort for what could be a rebuilding season next year.
Meanwhile, the Ravens are only four days removed from their shocking AFC Championship loss to the New England Patriots.
This was Pagano's first season as defensive coordinator and it's safe to say he did a good job.
This season under Pagano, the Ravens' defense led the league in red-zone defense and the AFC in sacks with 48.
Honestly, it's a bit of a shocking development for the Ravens.
It's common knowledge that successful coordinators are often considered for head coaching jobs, particularly Ravens' defensive coordinators.
Pagano is now the fourth Ravens defensive coordinator to land a head coaching job.
Still, there didn't seem to be any talk of Pagano leaving after this season.
Several Ravens players have expressed their love for Pagano; the team had been hoping for stability after having three different defensive coordinators over the last three seasons.
However, the Colts must have really liked what they saw in their interview with Pagano.
Meanwhile, the Ravens are left needing a defensive coordinator. They could certainly go in-house, as oftentimes their defensive coordinators started out as position coaches for the Ravens.
Two candidates who have been mentioned are linebackers coach Dean Pees and defensive line coach Clarence Brooks.
Pees has worked as the Ravens linebackers coach since 2010. He previously was defensive coordinator for the Patriots from 2006-2009.
His defenses were mostly among the league's best, particularly the 18-1 2007 Patriots' defense that finished No. 4 overall in yards allowed.
Granted, a lot of that was helped from Pro Bowl defensive players like Rodney Harrison, Tedy Bruschi and Adalius Thomas. Still, as defensive coordinator, Pees assuredly deserves some of the credit.
If he could get the Patriots' defense to perform that well, it's reasonable to think he could keep the Ravens playing like the best defense in the league.
Brooks has a slightly less decorated resume than Pees. He's been steadily coaching the Ravens defensive line since his arrival in 2005.
The defensive line has been one of the Ravens strengths over the past several seasons, which is something that works in his favor for his bid to be defensive coordinator.
There are also rumors that the Ravens could shop out of house and pick up a big name coordinator.
This could be someone like former Jacksonville Jaguars coach Jack Del Rio, who used to be the Ravens' linebackers coach.
Although he failed at coaching the Jaguars, it's possible that Del Rio still has what it takes to be a good defensive coach.
Personally, I don't think Del Rio will return to the Ravens.
It seems more likely that he would go somewhere where he could make his own mark, like the Denver Broncos' vacant defensive coordinator position.
The bottom line is: The Ravens defense should be fine regardless of who coaches it. They are one of the few teams that have an elite defense year in and year out.
Ray Lewis has already announced that he will not retire, meaning the Ravens will have their emotional captain back.
With many good players—both young and old—on their defense, there's not too much of a concern who plays defensive coordinator.
The Ravens organization typically makes good moves in this area, so it's reasonable to expect their defensive coordinator for 2012 will be the right one.
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